‘E’ of ESG and firm performance: Evidence from China

Binsheng Qian, Sunil Poshakwale and Yusen Tan

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: Following the ESG rating divergence reported in the previous research studies, we develop a novel firm-level Green Commitment (GC) index by incorporating new dimensions of environmental management and governance. We construct GC scores for all A-share listed companies in China from 2015 to 2021 and analyze whether firms with greater environmental commitment exhibit improvements in their future performance. Our results show that firms with high GC scores achieve higher stock returns without incurring extra risk. Additionally, a strong environmental commitment can enhance operating performance by mitigating financial constraints. The evidence supports the view that environmental investing contributes to the creation of positive shareholder value. Our GC index can be applied more widely to resolve the mixed evidence on the value implications of corporate environmental commitments.

Keywords: Environmental investing; ESG divergence; Firm performance; Financial constraints; Industry competition; State ownership (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006835

DOI: 10.1016/j.irfa.2024.103751

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